Taiwan established its carbon credits exchange today (the 7th). You may have heard the news that EU carbon credits have surpassed €100 per metric ton. But are domestic carbon credits exchanges the same as EU credits? Are carbon credits this expensive everywhere? The answer is no.
The international carbon market primarily involves two types of transactions: carbon emission allowances (allowances), trading, and carbon offset credits (credits). The European carbon market primarily relies on emission allowances; China's "carbon rights" fall into the second category, trading carbon offset credits. Let's take a look at the differences between the two!
1. Significantly Different Sources
Carbon Allowances:
Derived from the concept of "cap and trade." The government sets a limit on how much carbon a company can emit (an emission allowance) based on past emissions data. If emissions fall below the allowance, the excess allowance can be traded.
For example, if Company A receives 100 metric tons of CO2-equivalent emissions allowances and actually emits 80 metric tons, 20 metric tons can be traded. Company B, which has not yet achieved sufficient emissions reductions, can then purchase emissions allowances through trading to meet policy requirements. This system ensures that carbon reductions yield tangible economic benefits.
Carbon Offset Credits: Carbon offset credits are earned through carbon reduction projects like tree planting, energy conservation, and ecological restoration. Methodologies are used to convert carbon reductions into credits. (For details, see the Environmental Information Center Q&A: What are Carbon Offsets? How are Carbon Offset Credits earned?)
2. Large Price Differences:
Carbon Allowances:
Prices vary across carbon markets. For example, in the European Union's ETS (European Union Carbon Trading System), as the EU gradually reduces its emission allowances, the available tradable allowances have swelled, leading to a surge in carbon prices. By February 2023, the price reached nearly €100 (approximately NT$3,490) per metric ton.
Carbon market price fluctuations over the past five years. Image source: World Bank Carbon Pricing Status and Trends 2023 Report (CC BY 3.0 IGO)
Carbon Credits:
Carbon credits come from different projects, and their prices vary depending on the type of carbon reduction project. Carbon removal credits are the most expensive, ranging from US$15-20 per metric ton (approximately NT$470-630). Other credits are priced below US$10 (approximately NT$315).
References:
World Bank (May 2023), State and Trends of Carbon Pricing 2023
Source: Environmental Information Center (https://e-info.org.tw/node/237343)
